According to Income Tax Ordinance, Group Taxation or Tax Consolidation or Combined Reporting, is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes.
Group Taxation in Pakistan
Pakistan Corporate – Group Taxation. A locally incorporated holding company and subsidiary of a 100% owned group may be taxed as one group by giving an irrevocable option for taxation as one fiscal unit. The loss can be surrendered for a maximum of three years, and the required holding is for at least five years. The group is available if the companies are designated as entitled to avail group relief by the Securities and Exchange Commission of Pakistan.
Group Taxation Rules in Pakistan
As per Pakistani Laws, any company that is the subsidiary of a holding company may surrender its loss for the year to its holding company or its subsidiary, or between another subsidiary of the holding company, provided that the holding company directly holds 55% or more capital of the subsidiary if one of the companies is a listed company. However, if none of the companies is a listed company, the holding requirement is 75% or more. The loss can be surrendered for a maximum of three years, and the required holding is for at least five years.
What is a Consolidated Group for Tax Purposes
Tax consolidation, or combined reporting, is a regime adopted in the tax or revenue legislation of a number of countries which treats a group of wholly owned or majority-owned companies and other entities (such as trusts and partnerships) as a single entity for tax purposes.
Benefits of Tax Consolidation
- Intra-group transactions are ignored for income tax purposes Losses, franking credits and foreign tax credits are pooled
- Existing complex integrity provisions (such as those relating to cost base adjustments, loss deferral and debt forgiveness) do not apply to intra-group transactions
- Tax related impediments to group restructuring are reduced (for example, shares may be bought back into a group company without giving rise to a capital gain or loss, the liquidation of a member company will not trigger a deemed dividend, and assets can be moved between group entities without any formal rollover requirements)
- Ongoing compliance costs are reduced, as the group has a single income tax accounting period, self-assesses a single income tax liability, makes consolidated PAYG
- Instalments and maintains only one franking account